When you do it under the right circumstances, refinancing your Pennsylvania mortgage may be a great way to save money. However, there are many moving parts involved in refinancing your home. In some cases, doing so could wind up costing you more in the long run.
According to Bankrate, refinancing your home involves taking out a new home loan to replace the one you already have. There are a number of reasons you may want to do so, and some include securing a better interest rate than the one you currently have.
1. Is the interest rate going to save you money?
Often, a lower interest rate translates to savings. However, if you already paid, say, 15 years of mortgage payments on a 30-year loan, taking out a new 30-year loan is unlikely to save you money, even with a lower interest rate. If the current interest rate is higher than your current one, refinancing may only make sense in limited circumstances.
2. Do you have enough equity?
The amount of equity you have in your home helps determine if refinancing is an option. You need to have at least 20% equity in your home to avoid having to pay private mortgage insurance. Otherwise, you may find that the expense of paying this insurance eliminates any savings you might see on the loan, itself.
3. Is your credit adequate?
A lender’s likelihood to refinance your home depends to some degree on your credit score. The higher your credit score is, the more likely you are to find a lender willing to work with you.
Many different factors help determine if the time is right to refinance a mortgage. Ultimately, it comes down to considering all expenses, crunching numbers and figuring out what saves you the most in the long run.